Malta Enterprise - A Lesson How not to Tackle a Problem

Maltastar

The way the government is going about setting up Malta Enterprise to amalgamate the functions hitherto performed by MDC, IPSE and METCO is typical of how not to solve a problem.

A definition of the problem is first suitable to set the background to the issue.

The problem is that Malta is not attracting new Foreign Direct Investment (FDI). Such FDI is necessary to prop of sustainable economic growth creating real jobs that produce competitive goods and services that can be sold at a profit in a largely globalised market.

“The reason why FDI is not being attracted is because we do not have the right mix of ingredients which is necessary to score successes and deliver in clear and tangible manner.”

Yet experience shows that no new manufacturing investment is being attracted whilst some of the existing plants are ageing and closing down. Manufacturing as whole is shedding jobs even though many firms who came here in the seventies or earlier have kept re-inventing themselves over the years. There have been more successes in expansion and diversification of existing industries than in attracting new ones.

One could mention industries like Brand, Methode (formerly Merit), Baxter (formerly Medical and Hospital Products Ltd and Pharmamed – all industries that came here in the wave of inward investment of the seventies and kept regenerating themselves and currently survive and prosper for reasons very much different from the ones that attracted them here in the first place.

There is no great dispute on the problem. The Opposition has been seeing it for a long time. The Government now admits it too. But the way the government is trying to solve the problem is shockingly pitiful.

The reason why FDI is not being attracted is because we do not have the right mix of ingredients, which is necessary to score successes and deliver in clear and tangible manner. The ingredients include (not exclusively):

1.       having the right product – in terms of reliable infrastructure, competitive costs (both domestic as well as those sourced externally as may be effected by tariffs imposed by CET) and abundant supply of trained or trainable manpower with high level of professional and technical education.

2.       having the right incentives , not just fiscal.

3.       availability of project financing

4.       availability of production facilities

5.       quality of service including stability (political and economic)

6.       an effective marketing approach

The government ignores all this and instead assumes that all that’s failing us in attracting FDI is:

a)       a complicated structure and bad interaction among the various organisations involved in the matter i.e. MDC, IPSE, METCO (is MIMCOL to stay as is?)

b)       Inefficient human resources insufficiently motivated and focussed that can only be rendered effective if subjected to a new induction exercise where only those meeting established criteria are selected and new recruits from the market are taken in where current resources do not match required standards.

These assumptions are grossly wrong. The project is consequently bound to fail. It will serve only to jack up the costs without producing the desired deliverables.

Whether the proposed structure is better than the existent one is not that important. The corporate structure proposed for Malta Enterprise is not exactly that simple and it is debatable whether a non-Executive Chairman, a CEO and 8 CO’s would in effect perform better than the present separate structure.

“we will have a much more expensive outfit and the creation of more jobs for the boys in ME whilst existent resources are shifted to join the idle labour force in the public service”

I still remember Dr John C.Grech in 1987 explaining emphatically how important it was to break up MDC so that Trade Services are farmed out to METCO (and investment holdings to MIMCOL) so that MDC focuses on attracting new FDI. What was keeping, may I ask, the heads of MDC, IPSE and METCO from meeting regularly to co-ordinate their strategies?

The end result of the exercise is that we will have a much more expensive outfit and the creation of more jobs for the boys in ME whilst existent resources are shifted to join the idle labour force in the public service generating more waste and inefficiencies.

Whilst one should not rule out a different structure from the existing one, this is not the critical impediment for success in attracting FDI. I personally used to prefer the CBM to become the financial sector’s sole regulator and for MDC & MFSC to merge and become the FDI promoter both for industry and financial services.

But changing the structure and creating expensive jobs for the boys will not change anything except to increase the cost side. What Malta needs to attract FDI is a dynamic administration that can put together a balanced package of incentives to make Malta a good place to invest in, as it was during Labour administrations of the seventies and eighties (when ST Microelectronics arrived here) in spite of grossly unfavourable international economic scenario at the time.

This is a typical case of how not to solve a problem. In line with the deeply ingrained PN doctrine rather than address an issue at its core, they just think they can solve a problem by pretending to be doing something, throwing money at it aimlessly and just hope for the best!